The EURUSD currency pair was trading flat at writing as buyers and sellers fought for control. The currency pair broke from the two-day decline that had seen the dollar strengthen against the single currency since the week started.
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However, analysts and traders expect the currency pair to fall further as the US dollar strengthens against the euro, driven by market expectations of further rate hikes from the Federal Reserve compared to the European Central Bank.
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The markets expect the Fed to remain more hawkish than the ECB due to the relative strength of the American economy compared to the Eurozone economy. The latest Fed minutes also confirmed that the central bank was serious about its hawkish rhetoric.
Today marked the release of the Eurozone inflation data for January, with the headline CPI being recorded at an annualised 8.6%, while the core CPI came in at 5.3%. The Core CPI inched higher while the headline CPI figure fell, indicating that inflation in the region was still high.
Therefore, the ECB will likely keep hiking interest rates to bring down the inflation figures. However, the Fed appears more aggressive than the ECB, which still has to strike a delicate balance between lowering inflation and boosting the Eurozone economy, which is weaker than the US economy based on recent data.
The Fed’s hawkish stance is driven by the recent retail sales and PMI data, which indicated that the US economy is in much better shape than most expected. Hence, the Fed has more room to keep hiking rates before they become unsustainable and hurt the American economy.
Furthermore, US inflation is cooling much faster than expected, which is also good for the country. Overall, the dollar is expected to strengthen against most of its peers in the coming weeks ahead of the next FOMC meeting in March.
Still, the ECB will have to do more to keep inflation low, given today’s data, which showed that inflation in the EU was still high at 10.0%, with the 8.6% figure belonging to the euro area.
*This is not investment advice.
The EURUSD price chart.
The EURUSD currency pair was trading flat as buyers and sellers struggled for control.
YOUR CAPITAL IS AT RISK. 76% OF RETAIL CFD ACCOUNTS LOSE MONEY.